To the editor: Alaska’s Constitution currently protects the Permanent Fund [PF] by prohibiting any government spending of its principal. The fund is considered “permanent” because of the constitutional prohibition against spending principal. In addition to the nonspendable principal, a spendable portion called the Earnings Reserve Account [ERA] was created. Distributions currently only come from the ERA.
The core issue is whether we should remove “nonspendable” protection of the principal from our constitution and combine the current two-component system into one.
Alaskans should be very cautious about changing our constitution. The PF is an important feature to Alaskans. It provides some sense of long-range stability.
Alternative No. 1: Leave the constitution alone. Protect the nonspendable principal. Do not allow amendment of the constitution which puts principal and the “permanent” at risk.
Alternative No. 2: If Alternative No. 1 is not picked, then reduce the withdraw rate to 4.25% or 4.5%. Bill Bengen researched safe withdrawal rates and originally determined a 4% rate would provide an inflation protected expenditure for 30 years. Bengen’s recent studies have increased that rate slightly. If you want the fund to truly be “permanent,” a lower withdrawal rate is needed.
Alternative No. 3 : If Alternative No. 2 is desired, then demand that $70 billion of the $80 billion fund cannot be constitutionally touched. This is the only way to ensure that the fund remains “permanent.” This stops further destruction after spending actual earnings plus $10 billion. Create a spendable floor at $70 billion.
Alternative No. 4: If Alternative No. 1 is not picked, a better alternative than Alt 2 or Alt 3 is still available. Do not use the current percent of market value [POMV] for distributions. POMVs would be distributions based upon the funds gross value and could result in spending principal. Eliminate, for example, distributions under a POMV method and convert to an average of five years of actual earnings method. The likelihood of destroying the PF is small if only average actual future earnings are distributed.
Alternative 4 increases the potential that the word “permanent” meaningfully stays in Alaska’s Constitution.
Future generations will thank you!
